5 Key Factors in Understanding Your Credit Score
The Key Factors in Understanding your credit score:
Payment History (35%)
How much is owed (30%)
Length of Credit History (15%)
New Credit Applications (10%)
Types of Credit Used (10%)
Your payment history is the most important factor in your credit score. Creditors want to know if you will pay back the money you are asking to borrow from them.
When you apply for credit,how much you already owe does matter to a lender. The current sum of your payments will determine if you can include additional payments into your budget.
If you have had credit available to you for a long time, your credit report should provide an accurate picture of how you use credit. For someone who has not used credit for a very long time, or has minimal credit, there may not be enough history to determine future credit availability.
Frequently applying for new credit can signal a financial difficulty. In the industry it’s called “credit shopping” and it does not reflect favorably on someone’s credit score. Too many inquiries could be a red flag to potential lenders.
There are many types of credit available to borrowers. There are mortgages, instalment loans, as well as credit cards, each one being a different type of credit on your bureau. Even though this part of your credit score makes up 10% of the total, it is the least significant part, unless you don’t have much other information on your credit report.
The factors outlined above are calculated slightly differently by the two credit bureau companies in Canada, Equifax, and TransUnion, and it is up to each lender to decide how they interpret and use credit scores and credit report information.
